Posted on 05/27/2010 3:43:26 PM PDT by blam
Stocks Post MASSIVE Comeback: Here's What You Need To Know
Joe Weisenthal
May 27, 2010, 4:00 PM
Today showed a HUGE reversal from yesterday's miserable action, not just in US stocks, but in every key market around the world. US equities have now erased their losses for the week. Crazy.
But first, the scoreboard:
Dow: +286 (+2.8%)
NASDAQ: +82 (3.7%!)
S&P 500: +35 (3.3%)
And now for some key stories of the day:
* Things really seemed to hinge on the noise out of China that it had no intention to diversify away from eurozone bond holdings -- contradicting a report from FT yesterday. We argued that the FT story never made any sense, so we're inclined to believe China's statements. If anything, it's in the interest of Chinese leaders to prop up the euro, and save its own manufacturers' already razor-thin margins.
* Ironically, the only economic news today was bad: GDP came in weaker than expected, and initial weekly jobless claims also confirmed the stalling out trned.
* It took more than a month, but Barack Obama finally gave a press conference on the Deepwater Horizon oil catastrophe. It did not go particularly well, as he was, in essence, forced to side with BP's handling of the crisis -- an awkward position, to say the least.
* Also on the BP front, the company spiked on news that the oil leak has stopped, BUT this is not the end of the story at all. Next stage is the cement pouring, and we have no guarantee yet it will work. But, at least we're making some progress. Also, based on some estimates, the total leak now stands at 666,666.666 barrels, a very ominous number indeed.
[snip]
(Excerpt) Read more at businessinsider.com ...
PPT
Rational markets do not behave like those we have witnessed during the past month. We are in a cycle of action and reaction based not on normal valuation metrics but on short-term plays by a handful of institutions using computer-based trading algorithms placing what amount to casino-like bets on statistical outcomes. If you’re not worried, you are not paying attention.
This is the most schizophrenic market I have ever seen...
Yeah...what you said.
I simply call it a false market. Nothing appears to be what it really is.
Weekly volatility off the charts, real economy contracting, money velocity decelerating in spite of massive QE from the FED, the market volume mainly consists of the TBTF guys shuffling their free money from the FED around looking for the next speculative move to make a quick kill with the robot trading programs.
Stock market has officially become an index of how much more sugar daddy money is pouring into the TBTF coffers to play these games. The prozac cheerleading business press keeps pushing hard to draw the suckers back in so they can continue to fleece them. This will all end badly, this is not a market.
I have been watching the capital markets and been an investor for over 30 years, and I have never seen a marketplace as divorced from reality as this one. The beauty of capitalism is that it rewards those who base their decisions in factual information. This market is too often based on the effects of force and fraud, courtesy of the US government. Nothing good will ever come of it.
IIRC, Bernard Baruch said (60+ years ago) that the market runs on two emotions: fear and greed. In the last 20 years it has overreacted to fear and slowly reacted to the impulse to make money (what some call greed). That’s because government is increasingly a player in individual economic decisions.
The markets are ‘acting stupidly.’ I’m very light in them at this point.
That does play into it, but I think it is primarily still fear...the rumor that China was going to dump the EU debt it held scared them witless.
Today was simply the response to the rumor being denied, at least putting off the Euro's demise till another day.
If it were merely “stupidity” motivating the markets, then objective reality would eventually cause reconsideration, and necessarily a re-commitment of resources to more productive endeavors. However, what is happening today is not the result of mindlessness or frivolity, but of purposeful actions on the part of some who are merely content to glean short-term profits from irrational yet predictable events, and more to the point, by others committed to an ideology driven largely by an insatiable desire for the unearned.
“Rational markets do not behave like those we have witnessed during the past month.”
What is not rational is the enormous volume of liquidity created by the federal government. It is basically free money the gvt. gives away to large institutions. They can either loan it out to real people or speculate. They speculate. I think this is inflation in a narrow market. Lot’s of money chasing the same amount of equities.
At the same time, the amount of money in the real economy is crashing, nation-states are going to start defaulting, and in the real economy we are tiptoeing up to the cliff of deflation.
Program trading probably exacerbates the ups and downs. But the wild swings in the market seem to me like a rational response to an irrational set of facts brought about by our friends in the ruling class. I don’t know whether we end up in a deflationary spiral or an inflationary spiral. So how does one invest rationally? How does a market react rationally?
The dichotomy in this market is represented by the enormous amount of debt created by the government, in contrast to the reduced credit (and demand for credit) in the capital markets. The banks have all the “excess” and instead of loaning it out, they are investing it (short-term and via computerized trading programs). None of it seems healthy in the sense of traditional risk and reward calculus, because it is predicated on artificial values (the government creates unsecured debt and loans it at near zero interest rates to banks who pretend to have realistically-valued assets (CDO’s) to use it in leveraged security purchases and risk-swap agreements.
What on earth are people investing in?
This reminds me of a pre-Depression stock market really.
Boy, you are not kidding. Just look at the gaps and the volume spikes. I don't think casinos in the old days were rigged as much. (No matter what I do, I can't get rid of that damned Adobe message, which doesn't show up until I post it here)
“The dichotomy in this market is represented by the enormous amount of debt created by the government, in contrast to the reduced credit (and demand for credit) in the capital markets. The banks have all the “excess” and instead of loaning it out, they are investing it (short-term and via computerized trading programs). None of it seems healthy in the sense of traditional risk and reward calculus, because it is predicated on artificial values (the government creates unsecured debt and loans it at near zero interest rates to banks who pretend to have realistically-valued assets (CDO’s) to use it in leveraged security purchases and risk-swap agreements.”
That’s pretty much the way I see it too. And that’s why noone can figure out whether we are in an inflation or deflation. The answer varies depending on which asset classes you are looking at. And the reason is the inflationary money creation by the gvt is chasing only a limited set of asset classes. Meanwhile, the rest of the economy is teetering on deflation. Not sure which will win. Either way, Obama has backed us into a public debt corner where whatever direction it goes will be really bad.
Very mixed up metaphor in the last sentence. But if Obama gets to add 1 trillion a year to the debt, I feel entitled to stir up metaphors with abandon.
Interested in other's thoughts, as I made out well in gold stocks, got out, and now only partially invested.
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